By Suvankar Chakraborty | Principal Engineer — IAM & IT Operations
The Licensing Conversation Nobody Wants to Have
Every IT manager I know has sat in a procurement meeting where Microsoft 365 licensing was discussed and felt a quiet but persistent sense of discomfort — the nagging awareness that they are not entirely sure what their current licence includes, what the tier above it adds, and whether the business is paying for capabilities it is not using or missing capabilities it actually needs.
Microsoft 365 licensing is genuinely complex. Not because Microsoft has made it unnecessarily difficult — though the product naming history has not helped — but because the suite has grown organically over two decades from Office 365 productivity software into a platform that now spans identity, device management, security, compliance, analytics, and artificial intelligence. The licence tiers reflect this breadth, and understanding what sits where requires more than reading a comparison matrix.
This article is the plain-language guide to Microsoft 365 licensing that I wish existed when I started working with enterprise Microsoft environments. It covers the three licences that most mid-market and enterprise IT managers deal with — Business Premium, E3, and E5 — explains what is actually in each, walks through the security and compliance capabilities that differentiate the tiers, and gives you a decision framework for choosing the right licence for your organisation.
I am going to focus on what matters most for IT managers responsible for security, identity, device management, and compliance — not a feature-by-feature comparison of every application, but the strategic capabilities that drive the licence decision.
First: Understanding the Product Family Structure
Before comparing tiers, it helps to understand how Microsoft structures the M365 product family.
Microsoft 365 Business plans are designed for organisations with up to 300 users. They come in three tiers: Business Basic, Business Standard, and Business Premium. They include core productivity applications (Word, Excel, PowerPoint, Outlook, Teams) and, in the case of Business Premium, a meaningful set of security and compliance capabilities.
Microsoft 365 Enterprise plans are designed for organisations with 300+ users (though smaller organisations can purchase them). They come in F3 (Firstline Worker), E3, and E5 tiers. Enterprise plans include everything in the Business plans plus significantly more advanced security, compliance, analytics, and identity capabilities. There is no user count ceiling.
Add-on licences can supplement any base plan. The most important ones for security and identity are:
- Microsoft Entra ID P1 — adds Conditional Access, Intune, and Self-Service Password Reset
- Microsoft Entra ID P2 — adds Privileged Identity Management, Identity Protection, and Access Reviews
- Microsoft Defender for Endpoint Plan 1 / Plan 2 — adds endpoint detection and response capabilities
- Microsoft Entra ID Governance — adds entitlement management, lifecycle workflows, and advanced access reviews
- Microsoft Purview add-ons — adds advanced compliance capabilities
Understanding the add-on structure is important because it means the licence comparison is not binary. An organisation on E3 with specific add-ons can achieve a security posture close to E5. The question is whether the bundle economics of E5 make more sense than E3 plus individual add-ons.
What Every Microsoft 365 Plan Includes — The Baseline
Before comparing tiers, establish what every Microsoft 365 plan includes regardless of tier. This is the foundation:
Core productivity applications:
- Microsoft 365 Apps for Enterprise (Word, Excel, PowerPoint, OneNote, Access, Publisher) — desktop + web + mobile
- Microsoft Outlook and Exchange Online
- Microsoft Teams (messaging, meetings, voice — with appropriate add-ons)
- SharePoint Online
- OneDrive for Business
- Microsoft Forms, Planner, Lists, Stream, Whiteboard, Power Apps (basic), Power Automate (basic)
Basic security (Exchange Online Protection — EOP):
- Anti-spam filtering
- Anti-malware protection
- Basic anti-phishing
- Safe Attachments and Safe Links are not included at base level — these require Defender for Office 365 Plan 1 or higher
Basic identity (Microsoft Entra ID Free / P1):
- User and group management
- Basic SSO for M365 applications
- Multi-factor authentication (SSPR and MFA registration combined)
The baseline is genuinely useful. But for any organisation with security, compliance, or governance requirements beyond the basics, the differences between tiers become significant very quickly.
Microsoft 365 Business Premium — The SMB Security Suite
Target audience: Organisations with up to 300 users that need genuine enterprise-grade security without the complexity and cost of E3/E5.
Price point: Approximately $22 USD per user per month (as of 2024 — verify current pricing with Microsoft).
What Business Premium adds over Business Standard
Business Premium is a significant step up from Business Standard. It is not just a productivity upgrade — it is a security platform.
Identity and access management:
- Microsoft Entra ID P1 — Conditional Access policies, self-service password reset, dynamic groups, hybrid identity support
- MFA with Conditional Access (not just per-user MFA enforcement)
- Named locations, device compliance-based access control
Device management:
- Microsoft Intune — full MDM and MAM for Windows, iOS, Android, macOS
- Windows Autopilot — zero-touch device provisioning
- App protection policies for mobile devices
- Intune compliance policies integrated with Conditional Access
Endpoint security:
- Microsoft Defender for Business — this is the Business-tier version of Defender for Endpoint. It includes endpoint detection and response (EDR), vulnerability management, attack surface reduction rules, and next-generation antivirus
- The key limitation: Defender for Business is optimised for environments up to 300 users and has a simplified management interface compared to Defender for Endpoint Plan 2
Email and collaboration security:
- Microsoft Defender for Office 365 Plan 1 — Safe Attachments, Safe Links, anti-phishing with impersonation protection, real-time reports
- Anti-phishing with mailbox intelligence and impersonation detection
Compliance:
- Microsoft Purview Information Protection — sensitivity labels (manual labelling), basic DLP policies
- Azure Information Protection Plan 1
- Basic eDiscovery (content search)
- Endpoint DLP — prevents copying sensitive content to USB or unmanaged apps at the device level
What Business Premium does NOT include:
- Entra ID P2 (no PIM, no Identity Protection, no advanced Access Reviews)
- Defender for Endpoint Plan 2 (no advanced threat hunting, no 180-day data retention)
- Advanced Compliance (no Communication Compliance, no Advanced eDiscovery, no Insider Risk Management)
- Microsoft 365 E5-level SIEM integration
- Copilot for Microsoft 365 (separate add-on)
Who should be on Business Premium?
Business Premium is genuinely excellent value for organisations up to 300 users that previously had no real security stack. If your organisation is on Business Standard and relies on basic anti-spam and per-user MFA for security, Business Premium upgrades your posture significantly — Intune, Conditional Access, Defender for Business, and Defender for Office 365 Plan 1 together represent a meaningful security stack for the price point.
Business Premium is also a strong fit for:
- Professional services firms (legal, accounting, consulting) that handle client confidential data and need DLP and sensitivity labels
- Healthcare providers needing basic device management and email security
- Financial services SMBs needing Conditional Access and device compliance for regulatory purposes
Microsoft 365 E3 — The Enterprise Productivity and Compliance Baseline
Target audience: Organisations with 300+ users (or smaller organisations with compliance requirements that exceed Business Premium) needing full enterprise productivity, compliance, and identity management.
Price point: Approximately $36 USD per user per month (as of 2024).
What E3 adds over Business Premium
E3 represents the move to full enterprise identity and compliance capability. The security stack, however, remains limited without add-ons.
Identity and access management:
- Microsoft Entra ID P1 (same as Business Premium)
- All Conditional Access capabilities
- Note: Entra ID P2 is NOT included in E3. PIM, Identity Protection, and advanced Access Reviews require the P2 add-on or E5.
Productivity and collaboration:
- Unlimited OneDrive storage (Business Premium caps at 1TB per user)
- Microsoft 365 Apps for Enterprise with extended offline access
- Sway, Power BI Pro (through the M365 apps suite)
- MyAnalytics (personal productivity insights)
- Yammer Enterprise (internal social network — now part of Viva Engage)
Device management:
- Microsoft Intune — same MDM/MAM capability as Business Premium, no ceiling on user count
- Windows Autopilot
- Windows Enterprise licence — this is significant. E3 includes Windows 10/11 Enterprise edition upgrade rights. This enables features not available on Windows Pro: DirectAccess, AppLocker, BranchCache, Windows Defender Credential Guard, Device Guard. If your fleet is on Windows Pro and you need Windows Enterprise capabilities, E3 is the path.
Compliance — where E3 significantly extends Business Premium:
- Microsoft Purview Compliance Manager — compliance score and assessment framework
- Microsoft Purview eDiscovery (Standard) — full eDiscovery case management, legal hold, content search across Exchange, SharePoint, Teams
- Microsoft Purview Audit (Standard) — 90-day audit log retention
- Microsoft Purview Information Protection — sensitivity labels, Azure Information Protection Plan 1, manual and recommended labelling
- Microsoft Purview Data Loss Prevention — DLP policies for Exchange, SharePoint, Teams, OneDrive (not endpoint DLP — that requires additional configuration)
- Microsoft Purview Records Management (Basic) — retention labels and basic records management
- Microsoft Purview Message Encryption — encrypt emails sent to external recipients
What E3 does NOT include:
- Entra ID P2 — no PIM, no Identity Protection, no advanced Access Reviews (add separately)
- Microsoft Defender for Office 365 Plan 2 — Safe Attachments and Safe Links are NOT included in E3. This surprises many IT managers. E3 does not include Defender for Office 365. You must add Defender for Office 365 Plan 1 or Plan 2 as a separate add-on, or upgrade to E5.
- Microsoft Defender for Endpoint — no EDR, no advanced threat hunting. Defender Antivirus is included (as it is in Windows), but Defender for Endpoint Plan 1 or Plan 2 is not.
- Advanced Purview capabilities — no Communication Compliance, no Insider Risk Management, no Advanced eDiscovery, no Advanced Audit (1-year retention)
- Microsoft Sentinel — SIEM is not included in any M365 licence; it is a separate Azure service with its own billing
The E3 security gap — what most organisations miss
This is the most important thing to understand about E3: it is primarily a productivity and compliance licence, not a security licence.
E3 gives you excellent compliance capabilities — eDiscovery, DLP, sensitivity labels, retention policies. But on the security side, an E3 organisation without add-ons has:
- No endpoint detection and response (EDR)
- No advanced email threat protection (no Safe Links, no Safe Attachments)
- No identity risk detection (no Identity Protection)
- No Just-in-Time privileged access (no PIM)
- No advanced threat hunting
Many organisations on E3 believe they have a comprehensive security stack because they have Microsoft 365. They do not. E3 without security add-ons is a compliance-capable productivity suite with basic security controls. Adding Defender for Office 365 Plan 1 and Defender for Endpoint Plan 1 (approximately $10/user/month combined) begins to address the security gap — but at that cost addition, the E5 economics start to look compelling.
Who should be on E3?
E3 is appropriate for:
- Organisations with 300+ users that need full enterprise compliance capabilities (eDiscovery, DLP, retention, records management) and are willing to supplement with security add-ons
- Organisations that require Windows Enterprise upgrade rights for their fleet
- Organisations with existing endpoint security investments (CrowdStrike, Carbon Black) who do not need Microsoft's EDR and are primarily buying M365 for the productivity and compliance stack
- Organisations in a transition state — moving from a legacy environment toward E5 over 12–24 months, with add-ons bridging the gap
Microsoft 365 E5 — The Comprehensive Security and Compliance Platform
Target audience: Organisations requiring the full Microsoft security, compliance, identity, and analytics stack without purchasing multiple separate add-ons.
Price point: Approximately $57 USD per user per month (as of 2024).
What E5 adds over E3
E5 is not a modest upgrade over E3. It is a qualitatively different platform — the difference between a compliance-capable productivity suite (E3) and an integrated security and compliance platform with advanced identity governance and threat detection.
Identity and access management — the P2 upgrade:
-
Microsoft Entra ID P2 — this is the most important addition for IAM practitioners
- Privileged Identity Management (PIM) — Just-in-Time access for Entra ID roles and Azure RBAC roles
- Microsoft Entra Identity Protection — user risk and sign-in risk detection, automated risk-based Conditional Access, leaked credential detection, anomalous token detection, AiTM phishing detection
- Entra ID Access Reviews — structured, recurring access review campaigns with auto-remediation
- Entra ID Entitlement Management — access packages, approval workflows, connected organisations
- Microsoft Entra ID Governance — lifecycle workflows, advanced access reviews (included in E5 as of recent updates)
Email and collaboration security:
-
Microsoft Defender for Office 365 Plan 2 — everything in Plan 1 plus:
- Attack Simulation Training — phishing simulation campaigns to test and train employees
- Threat Trackers — proactive threat intelligence on emerging campaigns
- Threat Explorer — real-time threat investigation across your mail flow
- Automated Investigation and Response (AIR) — automated triage and remediation of email threats
- Campaign views — correlating related attack campaigns across your tenant
- Priority account protection — enhanced monitoring for executives and high-value targets
Endpoint security:
-
Microsoft Defender for Endpoint Plan 2 — the full enterprise EDR platform:
- Endpoint Detection and Response (EDR) with 180-day data retention
- Advanced Threat Hunting — KQL-based hunting across endpoint telemetry
- Threat and Vulnerability Management (TVM) — software inventory, vulnerability assessment, remediation prioritisation
- Network protection and web content filtering
- Device isolation, forensic investigation, live response
- Microsoft Threat Experts (managed hunting service)
- Deception technology (honeypots)
Cloud app security:
-
Microsoft Defender for Cloud Apps — the full CASB (Cloud Access Security Broker) platform:
- App discovery and shadow IT identification
- OAuth app governance
- Session controls for third-party SaaS applications
- Anomaly detection across SaaS application usage
- Cloud DLP extending Purview policies to SaaS applications
- Conditional Access App Control (reverse proxy for SaaS sessions)
Identity-centric threat detection:
-
Microsoft Defender for Identity — the on-premises Active Directory threat detection sensor:
- Sensors deployed on all domain controllers
- Detects lateral movement (Pass-the-Hash, Pass-the-Ticket, Overpass-the-Hash)
- Detects privilege escalation (DCSync, Golden Ticket, Silver Ticket)
- Detects reconnaissance (LDAP enumeration, DNS reconnaissance)
- Integration with Defender XDR for unified incident correlation
SIEM and SOAR:
- Microsoft Sentinel — E5 includes a Microsoft Sentinel benefit that provides free data ingestion for specific Microsoft data connectors (Entra ID, Defender XDR, Office 365 activity logs). This significantly reduces Sentinel operational cost. Full Sentinel is still billed separately by Azure, but the E5 benefit makes the economic model dramatically more attractive.
Advanced compliance:
- Microsoft Purview Advanced Audit — 1-year audit log retention (vs 90 days in E3), 10-year retention add-on available, additional audit events for forensic investigation (MailItemsAccessed, Send)
- Microsoft Purview Advanced eDiscovery — ML-assisted document review, near-duplicate detection, email threading, custodian-centric workflow, export in review set format
- Microsoft Purview Communication Compliance — supervised communication monitoring for policy violations (financial services conduct risk, workplace harassment, regulatory keyword monitoring)
- Microsoft Purview Insider Risk Management — behaviour analytics for data theft, data leaks, security violations, with HR system integration for departure signals
- Microsoft Purview Information Barriers — communication and collaboration restrictions between defined user segments (required in financial services, defence, legal)
- Microsoft Purview Records Management — full records management including regulatory immutable records, disposition review, file plan
Analytics:
- Microsoft Power BI Pro — included for all E5 users (E3 requires Power BI Pro as a separate licence)
- Viva Insights — organisational analytics (manager and leader insights)
- Microsoft Copilot for Microsoft 365 — available as an add-on to E5 (not included, but E5 is the recommended base licence for Copilot deployment given the data governance prerequisites it enables)
Who should be on E5?
E5 is appropriate for:
- Organisations that need both the full security stack (MDO Plan 2, MDE Plan 2, Defender for Identity, Defender for Cloud Apps) and the full compliance stack (Insider Risk, Communication Compliance, Advanced eDiscovery) — buying separately costs more than E5
- Regulated industries — pharmaceutical (GxP compliance, audit trail requirements), financial services (communication compliance, information barriers, records management), legal, healthcare
- Organisations with large volumes of sensitive data requiring Insider Risk Management and Advanced DLP
- Organisations deploying Microsoft Copilot for M365 — the data governance capabilities in E5 (sensitivity labels, DLP, access reviews) are prerequisites for responsible Copilot deployment
- Security-mature organisations that want a consolidated Microsoft security platform (Defender XDR) rather than managing point solutions
The Economics — E3 Plus Add-ons vs E5
The honest licensing question is rarely "do we need E5 capabilities?" Most security-conscious organisations do. The question is "is it cheaper to get to E5 capability through E3 plus add-ons, or should we just buy E5?"
Here is the approximate cost comparison for a 500-user organisation at 2024 US list pricing:
Option A: E3 with security add-ons
| Component | Per User/Month |
|---|---|
| Microsoft 365 E3 | $36.00 |
| Defender for Office 365 Plan 2 | $5.00 |
| Defender for Endpoint Plan 2 | $5.20 |
| Defender for Identity | $5.50 |
| Defender for Cloud Apps | $3.50 |
| Entra ID P2 | $9.00 |
| Purview Insider Risk Management | $5.20 |
| Purview Communication Compliance | $5.20 |
| Total | ~$74.60 |
Option B: Microsoft 365 E5
| Component | Per User/Month |
|---|---|
| Microsoft 365 E5 | $57.00 |
| Total | $57.00 |
E5 saves approximately $17.60 per user per month when compared to E3 with equivalent add-ons — at 500 users, that is $8,800/month or $105,600/year.
Important caveats on this comparison:
This calculation assumes you need all the add-on components. If your organisation has CrowdStrike for endpoint protection and does not need Defender for Endpoint, the E3 + selective add-ons model may be more cost-effective. The E5 value proposition is strongest when you need the full Microsoft security stack.
Additionally, Microsoft list pricing varies by region, agreement type (CSP vs EA vs MPSA), and agreement term. Indian enterprise pricing through Microsoft CSP partners or Enterprise Agreement differs from US list pricing. Always get a quote from your Microsoft licensing partner before making decisions based on list price comparisons.
Also note that Microsoft frequently runs promotional pricing, step-up offers from E3 to E5, and security add-on bundles that alter the economics. The Microsoft 365 E5 Security add-on (which includes Defender for Office 365 Plan 2, Defender for Endpoint Plan 2, Defender for Identity, and Defender for Cloud Apps) is a cost-effective way to add the security components to an E3 base without paying for the full E5 suite.
The Capability Comparison Matrix
Here is the summary capability matrix across the three licence tiers:
| Capability | Business Premium | E3 | E5 |
|---|---|---|---|
| Microsoft 365 Apps | ✅ | ✅ | ✅ |
| Exchange Online | ✅ Plan 1 | ✅ Plan 2 | ✅ Plan 2 |
| SharePoint Online | ✅ | ✅ | ✅ |
| Teams | ✅ | ✅ | ✅ |
| OneDrive | ✅ 1TB | ✅ Unlimited | ✅ Unlimited |
| Windows Enterprise | ❌ | ✅ | ✅ |
| Entra ID Tier | P1 | P1 | P2 |
| Conditional Access | ✅ | ✅ | ✅ |
| PIM (JIT Admin) | ❌ | ❌ | ✅ |
| Identity Protection | ❌ | ❌ | ✅ |
| Access Reviews | ❌ | ❌ | ✅ |
| Entitlement Management | ❌ | ❌ | ✅ |
| Intune MDM/MAM | ✅ | ✅ | ✅ |
| Windows Autopilot | ✅ | ✅ | ✅ |
| Defender for Office 365 | ✅ Plan 1 | ❌ | ✅ Plan 2 |
| Safe Links + Safe Attachments | ✅ | ❌ | ✅ |
| Attack Simulation Training | ❌ | ❌ | ✅ |
| Defender for Endpoint | ✅ Business | ❌ | ✅ Plan 2 |
| EDR + Advanced Hunting | ❌ | ❌ | ✅ |
| Defender for Identity | ❌ | ❌ | ✅ |
| Defender for Cloud Apps | ❌ | ❌ | ✅ |
| Defender XDR (unified SOC) | ❌ | ❌ | ✅ |
| Purview DLP | ✅ Basic | ✅ Standard | ✅ Advanced |
| Sensitivity Labels | ✅ Manual | ✅ Manual | ✅ + Auto |
| eDiscovery | ❌ | ✅ Standard | ✅ Advanced |
| Audit Log Retention | 90 days | 90 days | 1 year |
| Insider Risk Management | ❌ | ❌ | ✅ |
| Communication Compliance | ❌ | ❌ | ✅ |
| Information Barriers | ❌ | ❌ | ✅ |
| Power BI Pro | ❌ | ❌ | ✅ |
| Sentinel data benefit | ❌ | ❌ | ✅ |
A Practical Decision Framework
Rather than prescribing a single answer, here is the framework I use to guide licensing decisions:
Step 1: Assess your compliance obligations
What regulations govern your organisation?
ISO 27001, GDPR, basic Indian IT Act compliance: E3 with Defender for Office 365 Plan 1 add-on is typically sufficient. The compliance capabilities in E3 (eDiscovery, DLP, retention) plus basic email security cover these requirements.
Sector-specific regulation (pharma GxP, SEBI, RBI, financial services): E5 or E3 with advanced Purview add-ons. Communication Compliance, Advanced eDiscovery, 1-year audit retention, and Information Barriers are requirements, not options, in regulated financial services. For pharma GxP, the audit trail capabilities in E5 (Advanced Audit, longer retention) are relevant to 21 CFR Part 11 compliance.
No formal compliance framework, security posture is the priority: Business Premium (up to 300 users) or E3 + E5 Security add-on (enterprise) provides the best value for security-first organisations.
Step 2: Assess your security maturity and existing investments
Do you have existing endpoint security or SIEM investments?
CrowdStrike/SentinelOne for endpoint protection: You do not need Defender for Endpoint. E3 or E3 + Defender for Office 365 Plan 2 may be more cost-effective than E5.
No existing EDR: E5 or E3 + E5 Security add-on is strongly recommended. Without EDR, you lack the visibility to detect and respond to endpoint compromises.
Existing SIEM (Splunk, QRadar): The Sentinel benefit in E5 is less valuable. Consider E3 + specific add-ons.
No SIEM: E5 with the Sentinel data benefit significantly reduces the cost of building a Microsoft-native SOC.
Step 3: Assess your identity governance maturity
Do you have PIM, access reviews, or entitlement management requirements?
- Small IT team, no formal privileged access programme: Business Premium or E3 with P2 add-on.
- Active PAM programme, regulatory requirement for access reviews: E5 is the right baseline. Entra ID P2 is included, entitlement management is included, and the unified Defender XDR platform makes identity threat correlation practical.
Step 4: Run the economics
Given your answers to Steps 1–3, identify the minimum set of add-ons you need to meet your requirements on top of your base plan. Compare the total cost against E5. If the add-on total approaches or exceeds E5 pricing, E5 is the more logical choice.
Step 5: Evaluate mixed licensing
Not all users require the same capabilities. Consider:
- E5 for IT administrators, security team, and finance/legal teams who need PIM, advanced eDiscovery, Communication Compliance, and Insider Risk Management
- E3 for general knowledge workers who need productivity, basic compliance, and Windows Enterprise
- Business Premium or F3 for frontline workers with limited device and application needs
Mixed licensing (E5 for a subset, E3 or F3 for the majority) is a common and economically rational approach for many enterprises. The governance complexity of managing multiple licence tiers must be factored in — but for organisations with clear tier-appropriate populations, the cost saving is significant.
Common Licensing Mistakes to Avoid
Mistake 1: Assuming E3 includes Defender for Office 365
It does not. Safe Links and Safe Attachments — the two most impactful email security controls — are not included in E3. Every E3 organisation should evaluate Defender for Office 365 Plan 1 as a minimum add-on.
Mistake 2: Treating all users as equivalent
A Global Administrator who manages your Azure subscriptions and Entra ID tenant needs Entra ID P2 for PIM. A warehouse shift worker checking a Teams message on a shared tablet does not. Licence appropriately by role, not uniformly across all headcount.
Mistake 3: Buying E5 without activating the security components
I have seen organisations pay E5 per-user pricing for years while their Defender for Endpoint deployment was incomplete, PIM was never configured, Insider Risk Management was never set up, and the Advanced Audit capability was activated but never reviewed. E5 is only valuable when its capabilities are activated and operated. Before upgrading to E5, build a deployment plan for the capabilities you are paying for.
Mistake 4: Not accounting for annual commitment economics
Month-to-month M365 pricing is significantly higher than annual commitment pricing. Enterprise Agreements with Microsoft (for 500+ users) provide additional volume discounts and true-up flexibility. Always negotiate on annual or multi-year terms.
Mistake 5: Ignoring the Microsoft 365 E5 Security add-on as a middle path
Microsoft offers the Microsoft 365 E5 Security add-on (approximately $12/user/month) that can be added to E3. It includes Defender for Office 365 Plan 2, Defender for Endpoint Plan 2, Defender for Identity, Defender for Cloud Apps, and Entra ID P2. This is often the most cost-effective path for organisations that need the security stack but do not need the full advanced compliance capabilities of E5.
Similarly, the Microsoft 365 E5 Compliance add-on (approximately $12/user/month on top of E3) adds the full compliance stack: Advanced eDiscovery, Insider Risk Management, Communication Compliance, Information Barriers, Advanced Audit, and Records Management.
These add-ons allow organisations to get E5-equivalent capability in only the domain they need without paying for the full E5 suite.
The Microsoft 365 Copilot Licensing Consideration
Microsoft 365 Copilot requires a separate licence — approximately $30/user/month — in addition to a qualifying base Microsoft 365 plan. The qualifying plans are currently: Business Standard, Business Premium, E3, and E5.
However, while Copilot is technically licensable on E3, Microsoft and most M365 practitioners recommend E5 (or at minimum E3 with the E5 Security and Compliance add-ons) as the appropriate base for Copilot deployment. The reason is governance.
Copilot for Microsoft 365 accesses content based on the user's existing permissions. If a user can access a document, Copilot can surface it in responses. If your tenant has oversharing issues — "Anyone" links, "Everyone except external users" group permissions on sensitive content, guest accounts with excessive access — Copilot will surface that over-shared content.
The sensitivity labels (auto-labelling requires P2 / E5), access reviews, DLP policies, SharePoint governance tools, and Insider Risk Management that come with E5 are the governance controls that make Copilot deployment responsible rather than risky. Deploying Copilot on a base E3 tenant without addressing these governance prerequisites is how organisations end up with Copilot surfacing confidential board minutes to a junior employee who technically had SharePoint access to the site they were stored on.
Licensing for European MNCs Operating in India
A note specifically relevant for IT managers at European MNCs with India operations, which is the context most relevant to my Delhi NCR readership.
European MNCs typically have global Enterprise Agreement negotiations with Microsoft at the parent company level. The India entity's licensing is often determined by the global EA framework rather than independent procurement. However, several considerations are relevant:
Data residency: European entities with GDPR obligations may specify data residency requirements in their EA. Microsoft's M365 data residency options (Multi-Geo, Advanced Data Residency) are negotiated at EA level. India-based IT managers should understand whether their tenant data is stored in a region that satisfies both GDPR (for European parent compliance) and local Indian data localisation requirements.
Licence tier decisions: European MNCs in regulated sectors (pharma, financial services, automotive with TISAX requirements) typically standardise on E5 globally. India operations inherit this standard. If your organisation is on E3, it is worth understanding whether this is an intentional cost decision or a default that has never been re-evaluated.
Local compliance requirements: SEBI circular requirements for financial services, RBI technology risk guidelines, and sector-specific CERT-In requirements may drive specific M365 configuration and licensing decisions. The compliance capabilities in E5 (Advanced Audit, Insider Risk, Communication Compliance) are relevant to demonstrating compliance with these frameworks.
CSP vs EA: For India-subsidiary entities not covered by the parent EA, Microsoft CSP (Cloud Solution Provider) partners offer flexible monthly billing without EA commitment minimums. This can be relevant for India entities still building headcount or in a growth phase.
Conclusion: Buy the Licence That Matches Your Risk Profile
The Microsoft 365 licensing decision is ultimately a risk management decision, not a features comparison exercise.
Business Premium is appropriate when your primary risk is basic cyber threats and you need Intune plus email security plus device management in a cost-effective package for sub-300 users.
E3 is appropriate when your primary risk is compliance — data discovery, retention, DLP, and eDiscovery — and you either have existing security investments or are willing to add specific security add-ons.
E5 is appropriate when your risk profile includes advanced threats, regulatory complexity, identity governance requirements, and the operational need for a consolidated security platform — which, in 2025, describes most large enterprises in regulated industries.
The worst decision is neither E3 nor E5. The worst decision is E3 without understanding what it does not include, operating under the belief that "we have Microsoft 365" means "we are protected" — and discovering the gap during an incident rather than during a licensing review.
Know what you licence. Know what it includes. Know what it does not. And build your security and compliance programme around the capabilities you have actually activated, not the capabilities printed on a comparison matrix you read three years ago.
Suvankar Chakraborty is a Principal Engineer with 15+ years of experience in Identity & Access Management, Microsoft 365, Intune/Endpoint Management, and IT Operations. Connect with him on LinkedIn for more technical content on IAM, Zero Trust, and enterprise IT operations.
Read next:
- M365 Tenant Hardening — A Security Checklist for IT Managers
- Entra ID Governance — Access Reviews and Entitlement Management Explained
- Conditional Access Policies That Actually Work in Production
- How to Design a PAM Strategy for a 5,000-User Enterprise
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